1099's and W2's can already be confusing enough, but for doctors, they may mean something different.
Physicians who take on consulting projects or who have multiple revenue streams may have to manage fairly complicated issues when it comes to taxes. Income, even when earned outside of a regular full-time job, is always subject to tax.
Typically, taxes are withheld from payments for full-time employment. But revenue that you attain in work that is not full-time employment may be paid to you as a gross amount, without tax withheld.
If you have any monetary earnings from work outside of full-time employment, you will have to pay taxes on your earned income at the end of the year or you may need to pay your taxes in increments throughout the year. Whether you are hiring an accountant or submitting your taxes yourself, there are some things you can do to make the process as straightforward as possible. Keeping track of all income and expenses is vitally important. Sometimes, consulting opportunities such as attending an advisory board, providing expert witness services, or speaking at a conference deliver payment in just one or a few increments—and not necessarily on a long-term recurrent basis.
Often, correspondence for these types of consulting projects occurs over email, and payments may be electronic. For this reason, it is beneficial to keep documentation of your earned payments in a file on your computer, in an email folder, or by printing out a paper version of the documentation for the payments you have received, especially if you typically provide paper forms for your accountant.
If you are doing these projects only sporadically—by the time it comes time to file your taxes, a short-term project from months ago maybe long forgotten.
Making sure to keep track of documentation as you receive payments prevents you from forgetting to track them down when the time comes to submit your tax information. Some companies may send different tax forms to you at the end of the year or when it comes time to file your taxes. You are also likely to be asked to fill out forms in advance for companies who pay you.
If you are employed full time or part-time, you will receive a W2 form from your employer, which includes a statement of your income and taxes from that employer. When you provide services as a contractor, you may need to fill out a W9 for businesses who pay you. A 1099 form is often sent to you by an organization that paid you but does not employ you. For example, you may receive this form when you work as an independent contractor.
Keep in mind that very small businesses or new startups might not have their financial system set up to send you these types of tax forms. Nevertheless, if you receive more than $600 in payment, you are legally obligated to claim and pay taxes on the earnings even if you do not receive a form. And keep in mind that when a small business pays you, they will likely claim their payment to you as one of their business costs. If you receive a substantial portion of your income from sources that are not a primary employer, you may be able to take advantage of tax-deferred savings plans that are not employer-sponsored.
For example, higher education institutions participate in tax-deferred savings plans, and these programs might be open to guest lecturers and part-time faculty. And if you receive substantial income from self-employment, you may be able to set up a Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) as a way to defer taxes until a later time (presumably when you have a lower tax rate).
The bottom line when it comes to taxes on income earned outside of a full time employed position is that if you earn at least $600 from side income, you will owe taxes on that money. Some types of arrangements will provide you with payment in which taxes are already withheld, which makes the process fairly simple. And most large companies that dispense a gross payment to you will provide you with paperwork that you will use when you eventually pay taxes on the money you earned.
While smaller companies might not provide you with formal paperwork for use when you pay taxes, you will have to take on the burden of providing documentation of your income and proactively paying the taxes on the revenue earned. Depending on how much earning gross earnings you receive without taxes automatically withheld, you may need to pay taxes throughout the year rather than all at once when you file your taxes.